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If you own shares in LUZHENG FUTURES Company Limited (HKG:1461) then it’s worth thinking about how it contributes to the volatility of your portfolio, overall. In finance, Beta is a measure of volatility. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.
Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Some investors use beta as a measure of how much a certain stock is impacted by market risk (volatility). While we should keep in mind that Warren Buffett has cautioned that ‘Volatility is far from synonymous with risk’, beta is still a useful factor to consider. To make good use of it you must first know that the beta of the overall market is one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.
View our latest analysis for LUZHENG FUTURES
What does 1461’s beta value mean to investors?
Given that it has a beta of 1.16, we can surmise that the LUZHENG FUTURES share price has been fairly sensitive to market volatility (over the last 5 years). If the past is any guide, we would expect that LUZHENG FUTURES shares will rise quicker than the markets in times of optimism, but fall faster in times of pessimism. Beta is worth considering, but it’s also important to consider whether LUZHENG FUTURES is growing earnings and revenue. You can take a look for yourself, below.
Could 1461’s size cause it to be more volatile?
LUZHENG FUTURES is a rather small company. It has a market capitalisation of HK$1.2b, which means it is probably under the radar of most investors. It takes less money to influence the share price of a very small company. This may explain the excess volatility implied by this beta value.
What this means for you:
Since LUZHENG FUTURES tends to moves up when the market is going up, and down when it’s going down, potential investors may wish to reflect on the overall market, when considering the stock. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as LUZHENG FUTURES’s financial health and performance track record. I highly recommend you dive deeper by considering the following: